KUALA LUMPUR: Islamic finance should be made part of the halal ecosystem and not as a separate entity as practised in many countries where the industry is a part of the economy.
“In many countries, this is separated in the sense that there is no connection between Islamic finance and the halal industry, whereas what we should be saying is that when you talk about financing, it must be from Islamic finance.
“And if you put that as a requirement, by default, your Islamic financing will increase. We need to fill this gap by putting those requirements,” he told Bernama in an interview recently.
Based on the latest figures released in October 2019, Islamic banking accounted for 33% of Malaysia’s total banking assets while the takaful market share stood at 11% for family takaful and 10.1% for general takaful.
“At the moment, in Malaysia, because of the way we evaluate the halal certification, the financing is not part of the evaluation,” he said.
Azmi, who is part of a team that developed the Islamic economy master plan for Indonesia, said countries which are developing their Islamic economy such as Indonesia is making it mandatory that all Muslim products must be halal throughout the entire ecosystem.
“Indonesia started late. But for the republic’s master plan, we put that the Islamic finance industry must be part of the halal industry because, by default, Islamic finance is halal,” he pointed out.
The demand for Islamic finance will grow, Azmi said, mainly driven by continuous interest from the Muslim community and ethical finance such as for green finance and sustainable finance, especially in the new markets.
Growth in the traditional Islamic finance industry has tapered off as it has reached market saturation.
“In other parts of the world (in new markets), Islamic finance continues to grow. Recently, in Suriname, the country now has an Islamic bank which was opened in late 2018. In fact, it was converted into an Islamic bank from a conventional bank.
“Guyana is also planning to have an Islamic bank. So as you can see now, we have Islamic banking spreading from the African continent to South America,” he said.
Meanwhile, addressing the perception that financial technology (fintech) is an urban play, Azmi noted that fintech should be extended to the rural areas, and this should be provided under Shariah-compliant requirements.
He said while fintech adoption in the conventional system grew at a faster rate, this was not so in the case of Islamic finance.
“Islamic finance is playing a catch-up role. For example, in the case of digital Islamic banks, one is going to be established in Germany by the Al Baraka Group, but you do not have a digital Islamic bank in Malaysia or Indonesia, for that matter,” he said.
Azmi said that it would take some time for Islamic finance to fully embrace fintech, adding that Malaysia has homegrown fintech companies such as Ethis Malaysia providing ethical property crowdfunding in Malaysia and Indonesia.
“There are a couple of fintech companies that are providing solutions that are Shariah-compliant but if you compare with conventional applications, the latter offers much more.
“But bear in mind that fintech companies are small, unlike banks which have a big department that can look at all Shariah applications and issues. But for fintech companies, they may not be able to do that immediately,” he added. – Feb 16, 2020, Bernama
